7. Effect of a tax on buyers and sellers The following graph shows the daily mar

Question

7. Effect of a tax on buyers and sellers The following graph shows the daily market for shoes. Suppose price buyers pay and the price sellers receive the government institutes a tax of $10.15 per pair. This places a wedge between the Cemand Supply Tax Wedge QUANTITY (Pairs of shoes) Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax Quentity Price Buyers Pay Price Sellers Receive (Pairs of shoes) (Dollars per al) (ollers poer pair) After Tax lup

Explanation / Answer

Before tax the equilibrium is at the intersection of demand and supply graph. The triangle formed by the tax wedge is the government revenue.

Quantity Price Buyers Pay Price Sellers recieve Tax amount Before tax 50 25 25 0 After tax 42 26.15 16 10.15

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